There has been a number of standout devices that have come through over the last year. Although, they are not all standout for the same reasons. Lenovo introduced their PHAB 2 Pro which is the first Tango-enabled smartphone offering those interested the first real taste of an augmented reality-focused handset. Then there was the likes of the OnePlus 3 which seems to be a massive hit for those looking for a powerful handset at a significantly reduced cost. Samsung released their next in line flagship smartphone in the S series, the Galaxy S7 with this year clearly seeing the Edge variant becoming the new norm. And then there was LG.
In many ways LG has been the most novel of all the handset manufacturers with the release of their next in line LG G smartphone, the LG G5. A device which largely stands out from the rest due to its modular-focus. Which is interesting as it is not actually a modular smartphone, but one which just plays on modular principles. Not to mention, LG is not the only manufacturer this year to play on those principles with Motorola also making their latest Z range, modular-focused as well. However, when it comes to LG’s offering – it seems it is either light years ahead or just simply too weird for the majority market. Whichever is true, all indications are now pointing towards the LG G5 not being the success LG was hoping for. More to the point and as a byproduct of the LG G5, LG has not had the year they were hoping for. Under normal circumstances this would lead to much speculation on what will happen over at LG, like which jobs will be under threat and what changes will be made. Although it seems LG is continuing the trend of being the novel company of 2016 as it has essentially leapfrogged the speculation stage.
At the start of July LG made an announcement that they were changing up some of the company’s structure for their mobile department. In short, a number of executives were moving to various different roles and the company was introducing a new Program Management Office (PMO). The announcement, as well as the shake up and the newly formed PMO came with a very clear mandate – to add "new momentum" to LG’s mobile business. This is as well as LG providing the clearest of indications on how they view the G5 post-release, with LG stating “LG Electronics’ latest flagship G5 smartphone failed to generate sales.” This is keeping in mind that the LG G5 only became available to buy on April 1. With the shake up announcement coming on July 1 (literally three months to the day), this not only highlights that the LG G5 is failing in LG’s eyes, but it has failed from literally day one. An issue LG evidently does not expect the G5 to recover from going forward.
And we are now starting to see why, as another report emerged earlier this week which provides greater insight on how well (or more appropriately how poorly) the G5 is performing against LG’s own expectations. According to the newest report, LG had expected to sell roughly 3.5 million G5 units in the second quarter of 2016. The new details suggest the likely number of units sold will only reach the 2.5 million marker. So while it is still selling (and not a total flop), it is selling significantly less than expected. The knock-on effect of this is that the report also details that LG will likely adjust its wider anticipation of annual sales for the LG G5. Again, according to the details, the G5 was expected to sell in the region of 12 million devices this year and the newly suggested amount will now be closer to 5.5 million. Keeping in mind, that the G5 has already had its initial launch quarter and the expected (adjusted) units shipped figure for that quarter is now 2.5 million, the new yearly figure would suggest the LG G5 is going to curtail even more in terms of sales with only 3 million units expected to ship in the next six months. So not only does it seem as though the LG G5 will sell less than half of what was initially expected, the units shipped will literally cliff drop over the next two quarters. Which is obviously not good news for LG’s bottom line with the same report expecting LG to announce losses of in the region of $110 million for the second quarter alone. An amount which you can then extrapolate for the year ahead.
So while these figures are unconfirmed at the moment, the picture being painted is that the G5 has significantly under-performed. When you then factor in the announcement made by LG and the fact that after only three months of the G5 being on sale LG is looking to find “new momentum”, it does stand to reason that the figures cannot be too far away from the truth. The G series of smartphones is by far the biggest seller for LG’s mobile business and if that is not selling, LG Mobile has a problem, a significant one. So what it causing the issue? Why has the LG G5 not sold anywhere near what it should be selling? Well, this is a lot harder to pinpoint specifically and in reality is going to be a combination of smaller aspects which collectively not only result in a poor 2016 for LG, but also highly indicate that unless change comes soon, 2017 might not fare much better either.
The first obvious issue is the actual LG G5. If LG released a smartphone that everyone wanted, it would sell. It is that simple. So it stands to logic that no one wants the LG G5 and the only correlation which can be assumed is its modular nature. However, not the fact that it is modular per se, as the LG G5 is not a true modular smartphone. Instead this is one which adopts modular traits with the inclusion of aspects which can be swapped in or out. However, they are not the easiest of aspects to swap in and out – which many would assume should be a priority with anything modular-based. Not to mention, they are modules which are very hard to come by and in all honesty do not offer that much in terms of their value. The camera module does not improve camera abilities and while it does offer additional battery value, it cannot power the actual handset. So in the two ways in which this one (and main) module could add value, it fails on both accounts. Then there was the significant availability gap between the launch of the G5 and the modules, another clear sales momentum issue, when the main selling point of the device is its modular nature. So the way in which LG has adopted a modular approach, coupled with the fact that it has not been executed in the best manner, does seem likely to be one of the main reasons as to why the LG G5 and its “friends” has not gained the traction expected. Of course, on a more wider (and yet fundamental) level, the LG G5 has also raised criticisms that it is just not the best built device. One which lacks the premium look and feel which warrants its high price. So if you can take away the actual modular aspect for a moment, the phone that is left, is one which consumers do not seem overly keen to pay for.
Which neatly leads us to the next clear issue for LG, price. LG and their G line of smartphones has always been an ‘up their’ line of smartphones and one which does often get pitted against the likes of the Galaxy S series from Samsung. As is to be expected. This nearly automatically means we are always talking about a flagship-priced smartphone each year. And that in itself is something that has changed greatly over the last year or two.
Thanks to the likes of the OnePlus 3, a smartphone simply cannot automatically command a flagship price anymore. While OnePlus is not the only company shaking up the industry, the collective effect of budget and affordable-minded manufacturers has shaped the way in which value is attributed to a smartphone. Specs and even build-quality are no longer aspects which are resigned to high-end manufacturers and smartphones. In fact, in some ways this is what had partly contributed to those high-end smartphone manufacturers looking to introduce more novel smartphones. For instance, for a number of years Samsung had been considered to be on a slow decline when it comes to the Galaxy S sales. They were heavily criticized for the heavily-skinned version of Android, their more plastic-build and general high price. Instead of lowering the price, the last two years has seen Samsung respond by significantly increasing the premium build of its smartphones, as well as introducing the ‘Edge’. This latter aspect being what is now driving Samsung flagship sales massively and which is now seeing the company’s mobile division prosper again.
As a result, Samsung has managed to (and against the general curve) identify clear markers as to why their smartphones cost more. If you are in the market for a new smartphone and base your buying requirements on specs alone, then the offerings coming through from OnePlus, Xiaomi, ASUS and the rest, are fine. You are getting a high-performing device at a reasonable cost. If you want an extremely premium smartphone then Samsung has managed to provide reasons which justify the higher cost. Not to mention, this has also led to a number of typically iPhone consumers also moving across to Samsung. The Edge is literally in right now.
But the same cannot be said for LG. At a time where all premium tier smartphone manufacturers are being heavily criticized and asked to explain why consumers should buy their smartphones over a lower-priced smartphone, LG has failed to answer in a convincing enough manner. The LG G5 is not only a confused smartphone, but one which seems as though it was rushed to market. It lacks the premium quality that many would expect from a top tier smartphone and put simply, provides no direct reason why a consumer should buy it. If you ask a current G5 owner they will likely tell you it's a good phone, runs well and there are no major issues. Which although is all well and good, it is no longer enough. This is where LG as a company now has a major problem.
To be fair to LG, Samsung had been in a similar position a couple of years ago and HTC were in this exact position last year. However, the difference being that the G5 was a radical departure from the previous (and much loved) G series handsets. As a result, the G5 was expected to be the device which helps improve an already problematic market position and level of sales for LG’s mobile division. But that has not been the case. Samsung’s radical departure from their Galaxy S series design was an instant hit and now future generations devices seem to be building on that momentum. Likewise, while the HTC 10 did not set the smartphone world alight, it did bounce the company back from what was largely considered to be a failure with the One M9. Not forgetting, nobody can accuse HTC of sitting back in the market when they have quickly established themselves as one of the leading companies in virtual reality (which incidentally, is another arena Samsung has highly invested in as well). In terms of LG, VR ambitions seems largely non-existent and the company’s hopes were pinned on the G5. If successful, it would have allowed the company to continue in this new direction bringing out revised modular-focused devices with newer and better friends. Which does seem largely unlikely now. Instead, LG finds themselves now in the unique position of needing to re-imagine their G series – just after already re-imagining the G series. Which means by 2017 and over the short space of two years, it is highly likely the G series will have undergone two major redesigns and overhauls – one to the modular G5 and the next one away from the current G5 design. Which in itself highlights the fundamental concern for LG – how to reinvent the already-reinvented LG G range? This must be the question LG is currently asking themselves and to their credit, in as little as three months after the release of the G5 they are already making some changes to find the “new momentum” needed. Of course, with only seven or eight months until the next reinvention of the LG G series comes through, time is already ticking.